Legal Advice on forming corporate partnerships in Pakistan

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Our team regularly advises entrepreneurs and ambitious business persons on the various ways they can legally secure their business arrangements.One of these methods is registering a Partnership to give legal protection to the rights of the parties wishing to carry out business together.If you wish to look into such an arrangement for your business setting in Pakistan, we are only an email away to give you the best legal advice.The article below looks at the basic legal position governing Partnerships in Pakistan.

What law governs partnerships in Pakistan?

Partnership is a status arising from contract between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. A Partnership may be at will, for any duration specified, or for the prosecution of some particular and defined business.

Liability of the partners of a firm is joint and several. The firm is liable for individual acts of misfeasance and misapplication of money or goods by one of its partners.

Capacity.

No minor can be a partner but he may with consent of all partners be admitted to the benefits of the partnership. The minor’s right of action against the partners will only arise when and if he desires to sever the connection between himself and them and his share will then be determined after valuation.

Registration is not compulsory but if done should include particulars of the firm’s name, address of principal place of business and any other places of business, date of formation of the firm and date of joining of each partner and his address. This document should be signed and verified by all partners. Any alterations should be recorded. A firm which is not registered is not competent to sue for enforcement of any right from contract except as regards suit or claim of set-off not exceeding Rs. 100.

Rights and Liabilities of Partners Inter Se.

Duties of a partner are to carry on business to the greatest common advantage of all and to indemnify the other partners for any loss caused by his own fraud. Other rights and duties may be created by contract and can be varied or restricted. By contract it may be provided that a partner be reimbursed for his part in the conduct of the business. A partner is entitled to be reimbursed for expenses incurred by him in the ordinary and proper conduct of the business or in an emergency but not where the emergency arose out of his own wilful neglect. Unless otherwise agreed by contract, each partner is entitled to an equal share in the profit of the firm. Consent of all the partners is required to any changes.

Change in the Constitution of the firm does not vary the rights and duties of the remaining partners. If after expiry of a fixed term of years for the existence of the firm the partners continue their business, the rights and liabilities inter se remain as before and where other enterprises are undertaken as additional ventures to the original undertaking, the same rights and duties that attended the original undertaking will continue to apply to the additional undertaking.

Rights and Liabilities of Partners as to Third Persons.

A partner is agent for the firm and his actions bind the firm but he cannot without express authority (i) submit a dispute to arbitration, (ii) open a bank account for the firm in his own name, (iii) compromise a claim without authority on behalf of the firm, (iv) institute a suit, (v) withdraw a suit, (vi) admit liability, (vii) acquire immoveable property or transfer the firm’s immoveable property, (viii) enter into a partnership on behalf of the firm. However, by implied authority he may do all these things in an emergency to protect the firm from loss. Admissions by a partner are admissions by the firm and notice to one partner is notice to all except where it relates to a fraud committed by or with the consent of that partner.

Retirement from firm can be by consent; or by express agreement. Where a partner becomes insolvent, even if the partnership is not dissolved, he ceases to be a partner. Partner can also be discharged provided that power to expel has been conferred by express agreement between partners and said power has been exercised in good faith. Retiring partner can open new business and carry on same business as firm from which he retired but he cannot use firm name, represent former firm or solicit orders from its customers. Reasonable agreements in restraint of operating such new firm may be made and will be enforced.

Dissolution of the whole firm can take place by consent; adjudication of a partner, or the firm, as insolvent or, dissolution by notice of partnership-at-will; or happening of some event that makes pursuit of its purpose illegal. Firm will also be held to have been dissolved on expiry of express term of its duration or completion of its purpose. Liability of firm and each individual partner after dissolution continues until notice has been given to public of such dissolution.

Partnership law in Pakistan is governed by the Partnership Act 1932 which has been set out below along with its relevant commentary.

THE

PARTNERSHIP ACT, 1932

IX of 1932
8th April, l932

An Act to define and amend the law relating to partnership.

Whereas it is expedient to define and amend the law relating to partnership;

It is hereby enacted as follows:-

CHAPTER I
Preliminary

Short title, extent and commencement: (1) This Act may be called the Partnership Act. 1932.

(2) It extends to the whole of Pakistan.

(3) It shall come into force on the 1st day of October, 1932, except section 69, which shall come into force on the 1st day of October, 1933.

Definitions: In this Act, unless there is anything repugnant in the subject or context, –

(a) an “act of a firm” means any act or omission by all the partners, or by any partner or agent of the firm which gives rise to a right enforceable by or against the firm.

(b) “business” includes every trade, occupation and profession;

(c) “prescribed” means prescribed by rules made under this Act;

(d) “third party” used in relation to a firm or to a partner therein means any person who is not a partner in the firm; and

(e) expressions used but not defined in this Act and defined in the Contract Act, 1872 (IX of 1872), shall have the meanings assigned to them in that Act.

Application of provisions of Act IX of 1872: The unrepealed provisions of the Contract Act, 1872, save in so far as they are inconsistent with the express provisions of this Act, shall continue to apply to firms.

CHAPTER – II
The Nature Of Partnership

Definition of “partnership”, “partner”, “firm” and “firm name”. ‘”Partnership” is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all.

Persons who have entered into partnership with one another are called individually “partners” and collectively “a firm”, and the name under which their business is carried on is called the firm name”.

Illustrations:

(1) A and B buy 100 bales of cotton, which they agree to sell on their joint account. A and B are partners in respect of such cotton.

(2) A and B buy 100 bales of cotton, agreeing to share the cotton between them. A and B are not partners.

(3) A and B agree to work together as carpenters. A is to receive all the profits and pay a salary to B,-A & B are not partners.

(4) A and B enter into a “partnership agreement whereby A is to have no share in either the profits or the loss of the business – A and B are not partners.

(5) A and B are joint owners of a ship. This, by itself does not make them partners.

Partnership not created by status: The relation of partnership arises from contract and not from status; and, in particular, the members of a Hindu undivided family carrying on a family business as such, or a Burmese Buddhist husband and wife carrying on business as such are not partners in such business.

Court Decisions

Minor’s entitlement to benefits of partnership—Partnership constituted by adults partners—Inclusion of minor as partner does not invalidate partnership although relation of partnership arises from contract and minor is not competent to contract in view of S. 11, Contract Act (1872)—History of S- 30 traced upto (1866—Partnership firm entitled to registration under S. 26-A, Income Tax Act (1922)- P L J 1980 Supreme Court 520

Mode of determining existence of partnership: In determining whether a group of persons is or is not a firm, or whether a person is or is not a partner in a firm, regard shall be had to the real relation between the parties, as shown by all relevant facts taken together.

Explanation 1.

The sharing of profits or of gross returns arising from property by persons holding a joint or common interest in that property does not of itself make such persons partners.

Explanation 2.

The receipt by a person of a share of the profits of a business, or of a payment contingent upon the earning of profits or varying with the profits earned by business, does not of itself make him a partner with the persons carrying on the business;

6A; Act not to apply to certain, relationships: Nothing contained in this Act shall apply to a relationship created by any agreement between a banking company and a person or group of persons providing for sharing of profit and losses arising from or relating to the provision by the banking company of finance to such person or group of persons.

Explanation.-
For the purposes of this section, “banking company” and “finance” shall have the same meaning as in the Banking Tribunals Ordinance, 1984.

Partnership at will: Where no provision is made by contract between the partners for the duration of their partnership, or for the determination of their partnership, the partnership is “partnership at will”.

Particular Partnership: A person may become a partner with another person in particular adventures or undertakings.

CHAPTER-III
Relations of Partners to one Another

General duties of partners: Partners are bound to carry on the business of the firm to the greatest common advantage, to be just and faithful to each other, and to render true accounts and full information of all things affecting the firm to any partner or his legal representative.

Duty to indemnify for loss caused by fraud: Every partner shall indemnify the firm for any loss caused to it by his fraud in the conduct of the business of the firm.

Determination of rights and duties of partners by contract between the partners:

(1) Subject to the provisions of this Act, the mutual rights and duties of the partners of a firm may be determined by contract between the partners, and such contract may be express or may be implied by a course of dealing.

Such contract may be varied by consent of all the partners, and such consent may be express or may be implied by a course of dealing.

(2) Agreements in restraint of trade: Notwithstanding anything contained in section 27 of the Contract Act, 1872, IX of 1872 such contracts may provide that a partner shall not carry on any business other than that of the firm while he is a partner.

The conduct of the business: Subject to contract between the partners-

(a) every partner has a right to take part in the conduct of the business;

(b) every partner is bound to attend diligently to his duties in the conduct of the business;

(c) any difference arising as to ordinary matters connected with the business may be decided by a majority of the partners, and every partners shall have the right to express his opinion before the matter is decided, but no change may be made in the nature of the business without the consent of all the partners; and

(d) every partner has a right to have access to and to inspect and copy any of the books of the firm.

Mutual rights and liabilities: Subject to contract between the partners –

(a) a partner is not entitled to receive remuneration for taking part in the conduct of the business;

(b) the partners are entitled to share equally in the profits earned, and shall contribute equally to the losses sustained by the firm;

(c) where a partner is entitled to interest on the capital subscribed by him such interest shall be payable only out of profits;

(d) a partner making, for the purposes of the business, any payment or advance beyond the amount of capital he has agreed to subscribe, is entitled to interest thereon at the rate of six per cent per annum;

(e) the firm shall indemnify a partner in respect of payments made and liabilities incurred by him-

(i) in the ordinary and proper conduct of the business, and

(ii) in doing such act, in an emergency, for the purpose of protecting the firm from loss, as would be done by a person of ordinary prudence, in his own case, under similar circumstances; and

(f) a partner shall indemnify the firm for any loss caused to it by his willful neglect in the conduct of the business of the firm.

The property of the firm: Subject to contract between the partners, the property of the firm includes all property and rights and interests in property originally brought into the stock of the firm, or acquired, by purchase or otherwise, by or for the firm, or for the purposes and in the course of the business of the firm, and includes also the goodwill of the business.

Unless the contrary intention appears, property and rights and interests in property acquired with money belonging to the firm are deemed to have been acquired for the firm.

Application of the property of the firm: Subject to contract between the partners, the property of the firm shall be held and used by the partners exclusively for the purposes of the business.

Personal profits earned by partners: Subject to contract between the partners,-

(a) if a partner derives any profit for himself from any transaction of the firm, or from the use of the properly or business connection of the firm or the firm name, he shall account for that profit and pay it to the firm;

(b) if a partner carries on any business of the same nature as and competing with that of the firm, he shall account for and pay to the firm all profits made by him in that business.

Rights and duties of partners after a change in the firm: Subject to contract between the partners, –

(a) where a change occurs in the constitution of a firm, the mutual rights and duties of the partners in the reconstituted firm remain the same as they were immediately before the change, as far as may be;

(b) after the expiry of the term of the firm, and: where a firm constituted for a fixed term continues to carry on business after the expiry of that term, the mutual rights and duties of the partners remain the same as they were before the expiry, so far as they may be consistent with the incidents of partnership at will; and

(c) where additional under takings are carried out: where a firm constituted to carry out one or more adventures or undertakings carries out other adventures or undertakings, the mutual rights and duties of the partners in respect of the other adventures or undertakings are the same as those in respect of the original adventures or undertakings.

CHAPTER – IV
Relations Of Partners To Third Parties

Partner to be agent of the firm:— Subject to the provisions of this Act, a partner is the agent of the firm for the purposes of the business of the firm.

Implied authority of partner as agent of the firm: (1) Subject to the provisions of section 22, the act of partner which is done to carry on, in the usual way, business of the kind carried on by the firm, binds the firm. The authority of a partner to bind the firm conferred by this section is called his “implied authority”.

(2) In the absence of any usage or custom of trade to the contrary, the implied authority of a partner does not empower him to –

(a) submit a dispute relating to the business of the firm to arbitration,

(b) open a banking account on behalf of the firm in his own name,

(c) compromise or relinquish any claim or portion of a claim by the firm,

(d) withdraw a suit or proceeding filed on behalf of the firm,

(e) admit any liability in a suit or proceeding against the firm,

(f) acquire immoveable property on behalf of the firm,

(g) transfer immoveable property belonging to the firm, or

(h) enter into partnership on behalf of the firm.

Extension and restriction of partner’s implied authority: The partners in a firm may, by contract between the partners, extend or restrict the implied authority of any partner.

Notwithstanding any such restriction, any act done by a partner on behalf of the firm which falls within his implied authority binds the firm, unless the person with whom he is dealing knows of the restriction or does not know or believe that partner to be a partner.

Partner’s authority in an emergency: A partner has authority, in an emergency, to do all such acts for the purpose of protecting the firm from loss as would be done by a person of ordinary prudence, in his own case, acting under similar circumstances, and such acts bind the firm.

Mode of doing act to bind firm: In order to bind a firm, an act or instrument done or executed by a partner or other person on behalf of the firm shall be done or executed in the firm name, or in any other manner expressing or implying an intention to bind the firm.

Effect of admissions by a partner: An admission or representation made by a partner concerning the affairs of the firm is evidence against the firm, if it is made in the ordinary course of business.

Effect of notice to acting partner: Notice to a partner who habitually acts in the business of the firm of any matter relating to the affairs of the firm operates as notice to the firm, except in the case of a fraud on the firm committed by or with the consent of that partner.

Liability of a partner for acts of the firm: Every partner is liable, jointly with all the other partners and also severally, for all acts of the firm done while he is a partner.

Liability of the firm for wrongful acts of a partner: Where, by the wrongful act or omission of a partner acting in the ordinary course of the business of a firm, or with the authority of his partners, loss or injury is caused to any third party, or any penalty is incurred, the firm is liable therefor to the same extent as the partner.

Liability of firm for misapplication by partners: Where –

(a) a partner acting within his apparent authority receives money or property from a third party and misapplies it, or

(b) a firm in the course of its business receives money or property from a third party, and the money or properly is misapplied by any of the partners while it is in the custody of the firm, the firm is liable to make good the loss.

Holding out: (1) Any one who by words spoken or written or by conduct represents himself, or knowingly permits himself to be represented, to be a partner in a firm, is liable as a partner in that firm to any one who has on the faith of any such representation given credit to the firm, whether the person representing himself or represented to be a partner does or does not know that the representation has reached the person so giving credit.

(2) Where after a partner’s death the business is continued in the old firm name, the continued use of that name or of the deceased partner’s name as a part thereof shall not of itself make his legal representative or his estate liable for any act of the firm done after his death.

Rights of transferee of a partner’s Interest: (1) A transfer by a partner of his interest in the firm, either absolute or by mortgage, or by the creation by him of a charge on such interest, does not entitle the transferee, during the continuance of the firm, to interfere in the conduct of the business, or to require accounts, or to inspect the books of the firm, but entitles the transferee only to receive the share of profits of the transferring partner, and the transferee shall accept the account of profits agreed to by the partners.

(2) If the firm is dissolved or if the transferring partner ceases to be n partner, the transferee is entitled as against the remaining partners to receive the share of the assets of the firm to which the transferring partner is entitled, and, for the purpose of ascertaining that share, to an account as from the date of the dissolution.

Minors admitted to the benefits of partnership: (1) A person who is minor according to the law to which he is subject may not be a partner in a firm, but, with the consent of all the partners for the time being, he may be admitted to the benefits of partnership.

(2) Such minor has a right to such share of the property and of the profits of the firm as may be agreed upon, and he may have access to and inspect and copy any of the accounts of the firm.

(3) Such minor’s share is liable for the acts of the firm, but the minor is not personally liable for any such act.

(4) Such minor may not sue the partners for an account or payment of his share of the property or profits of the firm, save when severing his connection with the firm, and in such case the amount of his share shall be determined by a valuation made as far as possible in accordance with the rules contained in section 48.

Provided that all the partners acting together or any partner entitled to dissolve the firm upon notice to other partners may elect in such suit to dissolve the firm, and thereupon the Court shall proceed with the suit as one for dissolution and for settling accounts between the partners, and the amount of the share of the minor shall be determined along with the shares of the partners.

(5) At any time within six months of his attaining majority, or of his obtaining knowledge that he had been admitted to the benefits of partnership, whichever date is later, such person may give public notice that he has elected to become or that he has elected not to become a partner in the firm, and such notice shall determine his position as regards the firm:

Provided that, if he fails to give such notice, he shall become a partner in the firm on the expiry of the said six months.

(6) Where any person has been admitted as a minor to the benefits of partnership in a firm, the burden of proving the fact that such person had no knowledge of such admission until a particular date after the expiry of six months of his attaining majority shall lie on the persons asserting that fact.

(7) Where such person becomes a partner,-

(a) his rights and liabilities as a minor continue up to the date on which he becomes a partner, but he also becomes personally liable to third parties for all acts of the firm done since he was admitted to the benefits of partnership, and

(b) his share in the property and profits of the firm shall be the share to which he was entitled as a minor.

(8) Where such person elects not to become a partner, –

(a) his rights and liabilities shall continue to be those of a minor under this section up to the date on which he gives public notice.

(b) his share shall not be liable for any acts of the firm done after the date of the notice, and

(c) he shall be entitled to sue the partners for his share of the property and profits in accordance with sub-section (4).

Minor’s entitlement to benefits of partnership—Partnership constituted by adults partners—Inclusion of minor as partner does not invalidate partnership although relation of partnership arises from contract and minor is not competent to contract in view of S. 11, Contract Act (1872)—History of S- 30 traced upto (1866—Partnership firm entitled to registration under S. 26-A, Income Tax Act (1922)- P L J 1980 Supreme Court 520

CHAPTER – V
Incoming And Outgoing Partners

Introduction of a partner: (1) Subject to contract between the partners and to the provisions of section 30, no person shall be introduced as a partner into a firm without the consent of all the existing partners.

(2) Subject to the provisions of section 30, a person who is introduced as a partner into a firm does not thereby become liable for any act of the firm done before he became a partner.

Retirement of a partner:(1) A partner may retire –

(a) with the consent of all the other partners,

(b) in accordance with an express agreement by the partners, or

(c) where the partnership is at will, by giving notice in writing to all the other partners of his intention to retire.

(2) A retiring partner may be discharged from any liability to any third party for acts of the firm done before his retirement by an agreement made by him with such third party and the partners of the reconstituted firm, and such agreement may be implied by a course of dealing between such third party and the reconstituted firm after he had knowledge of the retirement.

(3) Notwithstanding the retirement of a partner from a firm, he and the partners Continue to be liable as partners to third parties for any act done by any of them which would have been an act of the firm if done before the retirement, until public notice is given of the retirement:

Provided that a retired partner is not liable to any third party who deals with the firm without knowing that he was a partner.

(4) Notices under sub-section (3) may be given by the retired partner or by any partner of the reconstituted firm.

Expulsion of a partner: (1) A partner may not be expelled from a firm by any majority of the partners, save in the exercise in good faith of powers conferred by contract between the partners.

(2) The provisions of sub-sections (2), (3) and (4) of section 32 shall apply to an expelled partner as if he were a retired partner.

Insolvency of a partner: (1) Where a partner in a firm is adjudicated an insolvent he ceases to be a partner on the date on which the order of adjudication is made, whether or not the firm is thereby dissolved.

(2) Where under a contract between the partners the firm is not dissolved by the adjudication of a partner as an insolvent, the estate of a partner so adjudicated is not liable for any act of the firm and the firm is not liable for any act of the insolvent, done alter the date on which the order of adjudication is made.

Liability of estate of deceased partner: Where under a contract between the partners the farm is not dissolved by the death of a partner, the estate of a deceased partner is not liable for any act of the firm done after his death.

Rights of outgoing partner to carry on competing business: (1) An outgoing partner may carry on a business competing with that of the firm and he may advertise such business, but, subject to contract to the contrary, he may not—

(a) use the firm name,

(b) represent himself as carrying on the business of the firm, or

(c) solicit the custom of persons who were dealing with the firm before he ceased to be a partner.

(2) Agreements in restraint of trade: A partner may make an agreement with his partners that on ceasing to be a partner he will not carry on any business similar o that of the firm within a specified period or within specified local limits; and, notwithstanding anything contained in section 27 of the Contract Act, 1872, IX of 1872 such agreement shall be valid if the restrictions imposed are reasonable.

Right of outgoing partner in certain cases to share subsequent profits: Where any member of a firm has died or otherwise ceased to be a partner, and the surviving or continuing partners carry on the business of the firm with the property of the firm without any final settlement of accounts as between them and the outgoing partner or his estate, then, in the absence of a contract to the contrary, the outgoing partner or his estate is entitled at the option of himself or his representatives to such share of the profits made since he ceased to be a partner as may be attributable to the use of his share of the property of the firm or to interest at the rate of six per cent. per annum on the amount of his share in the property of the firm:

Provided that where by contract between the partners an option is given to surviving or continuing partners to purchase the interest of a deceased or outgoing partner, and that option is duly exercised, the estate of the deceased partner, or the outgoing partner or his estate, as the case may be, is not entitled to any further or other share of profits; but if any partner assuming to act in exercise of the option does not in all material respects comply with the terms thereof, he is liable to account under the foregoing provisions of this section.

Revocation of continuing guarantee by change in firm: A continuing guarantee given to a firm, or to a third party in respect of the transactions of a firm, is, in the absence of agreement to the contrary, revoked as to future transactions from the date of any change in the constitution of the firm.

CHAPTER – VI
Dissolution Of A Firm

Dissolution of a firm: The dissolution of partnership between all the partners of a firm is called the “dissolution of the firm”.

Dissolution by agreement: A firm may be dissolved with the consent of all the partners or in accordance with a contract between the partners.

Compulsory dissolution: A firm is dissolved –

(a) by the adjudication of all the partners or of all the partners but one as insolvent, or

(b) by the happening of any event which makes it unlawful for the business of the firm to be carded on or for the partners to carry it on in partnership:

Provided that, where more than one separate adventure or undertaking is carried on by the firm, the illegality of one or more shall not of itself cause the dissolution of the firm in respect of its lawful adventures and undertakings.

Dissolution on the happening of certain contingencies: Subject to contract between the partners a firm is dissolved-

(a) if constituted for a fixed term, by the expiry of that term;

(b) if constituted to carry out one or more adventures or undertakings, by the completion thereof;

(c) by the death of a partner; and

(d) by the adjudication of a partner as an insolvent.

Dissolution by notice of partnership at will: (1) Where the partnership is at will, the firm may be dissolved by any partner giving notice in writing to all the other partners of his intention to dissolve the firm.

(2) The firm is dissolved as from the date mentioned in the notice as the date of dissolution or, if no date is so mentioned, as from the date of the communication of the notice.

Dissolution by the Court: At the suit of a partner, the Court may dissolve a firm on any of the following grounds, namely:-

(a) that a partner has become of unsound mind, in which case the suit may be brought as well by the next friend of the partner who has become of unsound mind as by an other partner;

(b) that a partner, other than the partner suing, has become in any way permanently incapable of performing his duties as partner.

(c) that a partner, other than the partner suing, is guilty of conduct which is likely to affect prejudicially the carrying on of the business, regard being had to the nature of the business;

(d) that a partner, other than the partner suing, willfully or persistently commits breach of agreements relating to the management of the affairs of the firm or the conduct of its business, or otherwise so conducts himself in matters relating to the business that it is not reasonably practicable for the other partners to carry on the business in partnership with him;

(e) that a partner, other than the partner suing, has in any way transferred the whole of his interest in the firm to a third party, or has allowed his share to be charged under the provision of rule 49 of Order XXI of the First Schedule to the Code of Civil Procedure, 1908, V of 1908 or has allowed it to be sold in the recovery of arrears of land-revenue or of any dues recoverable as arrears of land-revenue due by the partner,

(f) that the business of the firm cannot be carried on save at a loss; or

(g) on any other ground which renders it just and equitable that the firm should be dissolved.

Liability for acts of partners done after dissolution: (1) Notwithstanding the dissolution of a firm, the partners continue to be liable as such to third parties for any act done by any of them which would have been an act of the firm if done before the dissolution, until public notice is given of the dissolution:

Provided that the estate of a partner who dies, or who is adjudicated an insolvent, or of a partner who, not having been known to the person dealing with the firm to be a partner, retires from the firm, is not liable under this section for acts done alter the date on which he ceases to be a partner.

(2) Notices under sub-section (1) may be given by any partner.

Right of partners to have business wound up after dissolution: On the dissolution of a firm every partner or his representative is entitled, as against all the other partners or their representatives, to have the property of the firm applied in payment of the debts and liabilities of the firm, and to have the surplus distributed among the partners or their representatives according to their rights.

Continuing authority of partners for purposes of winding up: After the dissolution of a firm the authority of each partner to bind the firm, and the other mutual rights and obligations of the partners, continue notwithstanding the dissolution, so far as may be necessary to wind up the affairs of the firm and to complete transactions begun but unfinished at the time of the dissolution, but not otherwise:

Provided that the firm is in no case bound by the acts of a partner who has been adjudicated insolvent; but this proviso does not affect the liability of any person who has after the adjudication represented himself or knowingly permitted himself to be represented as a partner of the insolvent.

Court Decisions

Suit by a firm after its dissolution by a partner–Competency–Any mis-discription in the particulars of parties, would not create any disabling consequences for decree holder particularly when it was proved on record that agreement in question was executed in favour of firm–Partnerhsip would not come to an end on dissolution of firm but would continue for purpose of winding up a business–Any partner can sue and be sued in the name of the same firm for adjudication of unfinished affairs.PLJ 1999 Lahore 1354

Mode of settlement of accounts between partners: In settling the accounts of a firm after dissolution, the following rules shall, subject to agreement by the partners, be observed:-

(a) Losses, including deficiencies of capital, shall be paid first out of profits, next out of capital, and, lastly, if necessary, by the partners individually in the proportions in which they were entitled to share profits.

(b) The assets of the firm, including any sums contributed by the partners to make up deficiencies of capital, shall be applied in the following manner and order:-

(i) in paying the debts of the firm to third parties;

(ii) in paying to each partner ratably what is due to him from the firm for advances as distinguished from capital;

(iii) in paying to each partner ratably what is due to him on account of capital; and

(iv) the residue, if any, shall be divided among the partners in the proportions in which they were entitled to share profits.

Court Decisions

Any mis-discription in the particulars of parties, would not create any disabling consequences for decree holder particularly when it was proved on record that agreement in question was executed in favour of firm–Partnerhsip would not come to an end on dissolution of firm but would continue for purpose of winding up a business–Any partner can sue and be sued in the name of the same firm for adjudication of unfinished affairs. PLJ 1999 Lahore 1354 (DB)

Payment of firm’s debts and of separate debts: Where there are joint debts due from the firm, and also separate debts due from any partner, the property of the firm shall be applied in the first instance in payment of the debts of the firm, and, if there is any surplus, then the share of each partner shall be applied in payment of his separate debts or paid to him. The separate property of any partner shall be applied first in the payment of his separate debts, and the surplus (if any) in the payment of the debts of the firm.

Personal profits earned after dissolution: Subject to contract between the partners, the provisions of clause (a) of section 16 shall apply to transactions by any surviving partner or by the representatives of a deceased partner, undertaken after the firm is dissolved on account of the death of a partner and before its affairs have been completely wound up:

Provided that where any partner or his representative has bought the goodwill of the firm, nothing in this section shall affect his right to use the firm name.

Illustration.-

(1) A and B carry on business in partnership. The firm holds leasehold for the purposes of the business. A dies, Before the affairs of the firm are completely would up, the lease expires and B renews it. The renewed lease is partnership property.

(2) A, B and C are partners. A agrees to take lease in his own name, but in fact for partnership purposes, and dies before the lease is executed. The representatives of A can not deal with the lease without the consent of B and C.

Return of premium on premature dissolution: Where a partner has paid a premium on entering into partnership for a fixed term, and the firm is dissolved before the expiration of that term otherwise than by the death of a partner, he shall be entitled to repayment of the premium or of such part thereof as may be reasonable, regard being had to the terms upon which he became a partner and to the length of time during which he was a partner, unless –

(a) the dissolution is mainly due to his own misconduct, or

(b) the dissolution is in pursuance of an agreement containing no provision for the return of the premium or any part of it.

Illustration.-

(1) A and B entered into partnership as solicitors for a term of seven years, A paying a premium of Pound 8001- to B, who, before entering into the partnership, knew that A was inexperienced and incompetent. After the expiration of two years, B complained that A’s incompetence was injurious to the business, and called upon him to dissolve the partnership. A= thereupon files a suit praying for a dissolution and for a return of a proportionate part of the premium. A is entitled to the return of a part of premium proportionate to the un-expired portion of the term:

(2) A and B become partner for ten years. A paying B a premium of pound 1000. A quarrel occurs at !he end of the eight years, both parties being in wrong, and a dissolution is decreed. A is entitled to a return of pound 200 of the premium from B.

Rights where partnership contract is rescinded for fraud or misrepresentation: Where a contract creating partnership is rescinded on the ground of the fraud or misrepresentation of any of the parties thereto, the party entitled to rescind is, without prejudice to any other right, entitled –

(a) to a lien on, or a right of retention of, the surplus or the assets of the firm remaining after the debts of the firm have been paid, for any sum paid by him for the purchase of a share in the firm and for any capital contributed by him;

(b) to rank as a creditor of the firm in respect of any payment made by him towards the debts of the firm; and

(c) to be indemnified by the partner or partners guilty of the fraud or misrepresentation against all the debts of the firm.

Right to restrain from use of firm name or firm property: Alter a firm is dissolved, every partner or his representative may, in the absence of a contract between the partners to the contrary, restrain any other partner or his representative from carrying on a similar business in the firm name or from using any of the property of the firm for his own benefit, until the affairs of the firm have been completely wound up:

Provided that where any partner or his representative has bought the goodwill of the firm, nothing in this section shall affect his right to use the firm name.

Agreements in restraint of trade: Partners may, upon or in anticipation of the dissolution of the firm, make an agreement that some or all of them will not carry on a business similar to that of the firm within a specified period or within specified local limits; and notwithstanding anything contained in section 27 of the Contract Act, 1872, such agreement shall be valid if the restrictions imposed are reasonable.

Sale of goodwill after dissolution: (1) In settling the accounts of a firm after dissolution, the goodwill shall, subject to contract between the partners, be included in the assets, and it may be sold either separately or along with other property of the firm.

(2) Rights of buyer and seller of goodwill: Where the goodwill of a firm is sold after dissolution, a partner may carry on a business competing with that of the buyer and he may advertise such business, but, subject to agreement between him and the buyer, he may not-

(a) use the firm name,

(b) represent himself as carrying on the business of the firm, or

(c) solicit the custom of persons who were dealing with the firm before its dissolution.

(3) Agreements in restraint of trade: Any partner may, upon the sale of the goodwill of a firm, make an agreement with the buyer that such partner will not carry on any business similar to that of the firm within a specified period or within specified local limits, and, notwithstanding anything contained in section 27 of the Contract Act, 1872, IX of 1872 such agreement shall be valid if the restrictions imposed are reasonable.

CHAPTER – VII
Registration Of Firms

Power to exempt from application of this Chapter: The Provincial Government of any Province may, by notification in the official Gazette, direct that the provisions of this Chapter shall not apply to that Province or to any part thereof specified in the notification.

Appointment of Registrars: (1) The Provincial Government may appoint Registrars of Firms for the purposes of this Act, and may define the areas within which they shall exercise their powers and perform their duties.

(2) Every Registrar shall be deemed to be a public servant within the meaning of section 21 of the Pakistan Penal Code.

Application for registration:(1) The registration of a firm may be effected at any time by sending by post or delivering to the Registrar of the area in which any place of business of the firm is situated or proposed to be situated, a statement in the prescribed form and accompanied by the prescribed fee, stating –

(a) the firm name,

(b) the place or principal place of business of the firm.

(c) the names of any other places where the firm carries on business,

(d) the date when each partner joined the firm,

(e) the names in full and permanent addresses of the partners, and (f)

(f) the duration of the firm.

The statement shall be signed by all the partners, or by their agents specially authorised in this behalf.

(2) Each person signing the statement shall also verify it in the manner prescribed.

(3) A firm name shall not contain any of the following words, namely:-

“Government”, “Jinnah”, “Quaid-i-Azam” or words expressing or implying the sanction, approval or patronage of the Federal Government or any Provincial Government or the Quaid-i-Azam, except when the Provincial Government signifies its consent to these of such words as part of the firm name by order in writing.

(3A) A firm name shall not contain the name of the “United Nations” or its abbreviations through the use of its initial letters or of any subsidiary body set up by that body unless it has obtained the previous authorisation of the Secretary-General of the United Nations in writing.

(3B) A firm name shall not contain the name of the “World Health Organisation” or its abbreviations through the use of its initial letters unless it has obtained the previous authorisation of the Director-General in writing.

(3c) A firm name shall not contain any word which may be declared by the Provincial Government, by notification in the official Gazette, to be undesirable:

Provided that a firm which has as pad of its name any word declared by the Provincial Government to be undesirable shall, within one month of such declaration, alter its name and send a statement to this effect to the Registrar.

Registration: When the Registrar is satisfied that the provisions of section 58 have been duly complied with, he shall record an entry of the statement in a register called the Register of Firms, and shall file the statement.

Recording of alterations in firm name and principal place of business:(1) When an alteration is made in the firm name or in the location of the principal place of business of a registered firm, a statement may be sent to the Registrar accompanied by the prescribed fee, specifying the alteration, and signed and verified in the manner required under section 58.

(2) When the Registrar is satisfied that the provisions of sub-section (1) have been duly complied with, he shall amend the entry relating to the firm in the Register of Firms in accordance with the statement, and shall file it along with the statement relating to the firm filed under section 59.

Noting of closing and opening of branches: When a registered firm discontinues business at any place or begins to carry on business at any place, such place not being its principal place of business, any partner or agent of the firm may send intimation thereof to the Registrar, who shall make a note of such intimation in the entry relating to the firm in the Register of Firms, and shall file the intimation along with the statement relating to the firm filed under section 59.

Noting of change in name and addresses of partners:When any partner in a registered firm alters his name or permanent address, an intimation of the alteration may be sent by any partner or agent of the firm to the Registrar, who shall deal with it in the manner provided in section 61.

Recording of changes in and dissolution of a firm: (1) When a change occurs in the constitution of a registered firm any incoming, continuing or outgoing partner, and when a registered firm is dissolved any person who was a partner immediately before the dissolution, or the agent of any such partner or person specially authorised in this behalf, may give notice to the Registrar of such change or dissolution, specifying the date thereof; and the Registrar shall make a record of the notice in the entry relating to the firm in the Register of Firms, and shall file the notice along with the statement relating to the firm filed under section 59.

(2) Recording of withdrawal of a minor: When a minor who has been admitted to the benefits of partnership in a firm attains majority and elects to become or not to become a partner, and the firm is then a registered firm, he, or his agent specially authorised in this behalf, may give notice to the Registrar that he has or has not become a partner, and the Registrar shall deal with the notice in the manner provided in sub-section (1).

Rectification of mistake: (1) The Registrar shall have power at all times to rectify any mistake in order to bring the entry in the Register of firms relating to any firm into conformity with the documents relating to that firm filed under this Chapter.

(2) On application made by all the parties who have signed any document relating to the firm filed under this Chapter, the Registrar may rectify any mistake in such document or in the record or note thereof made in the Register of Firms.

Amendment of Register by order of Court: A court deciding any matter relating to a registered firm may direct that the Registrar shall make any amendment in the entry in the Register of Firms relating to such firm which is consequential upon its decision; and the Registrar shall amend the entry accordingly.

Inspection of Register and filed documents: (1) The Register of Firms shall be open to inspection by any person on payment of such fee as may be prescribed.

(2) All statements, notices and intimations filed under this Chapter shall be open to inspection, subject to such conditions and on payment of such fee as may be prescribed.

Grant of copies: The Registrar shall on application furnish to any person, on payment of such fee as may be prescribed, a copy, certified under his hand, of any entry or portion thereof in the Register of Firms.

Rules of evidence: (1) Any statement, intimation or notice recorded or noted in the Register of Firms shall, as against any person by whom or on whose behalf such statement, intimation or notice was signed, be conclusive proof of any fact therein stated.

(2) A certified copy of an entry relating to a firm in the Register of Firms may be produced in proof of the fact of the registration of such firm, and of the contents of any statement, intimation or notice recorded or noted therein.

Illustration.-

A, B and C are partners in a registered firm. A retires. It will be as necessary for A as for B and C to give public notice of his retirement which under Sec. 72 of this Act, includes notice to the Registrar. If this is not done, A will be as much liable for the acts of the continuing partners or of the firm as if A had continued to be a member of the firm. And on the other hand the firm will be liable for any act purporting to be done by A on behalf of the firm after retirement.

Effect of non-registration:(1) No suit to enforce a right arising from a contract or conferred by this Act shall be instituted in any Court by or on behalf of any person suing as a partner in a firm against the firm or any person alleged to be or to have been a partner in the firm unless the firm is registered and the person suing is or has been shown in the Register of Firms as a partner in the firm.

(2) No suit to enforce a right arising from a contract shall be instituted in any Court by or on behalf of a firm against any third party unless the firm is registered and the persons suing are or have been shown in the Register of Firms as partners in the firm.

(3) The provisions of sub-sections (1) and (2) shall apply also to a claim of set-off or other proceeding to enforce a right arising from a contract, but shall not affect-

(a) the enforcement of any right to sue for the dissolution of a firm or for accounts of a dissolved firm, or any right or power to release the property of a dissolved firm, or

(b) the powers of an official assignee, receiver or Court under the insolvency Federal Territory of Karachi Act, 1909], or the Provincial Insolvency Act, 1920, to realise the property of an insolvent partner.

(4) This section shall not apply –

(a) to firms or to partners in firms which have no place of business in Pakistan, or whose places of business in Pakistan are situated in areas to which, by notification under section 56, this Chapter does not apply, or

(b) IX of 1887: to any suit or claim of set-off not exceeding one hundred rupees in value which, is not of a kind specified in the Second Schedule to the Provincial Small Cause Courts Act, 1887, or to any proceeding in execution or other proceeding incidental to or arising from any such suit or claim.

Court Decisions

Suit by unregistered firm—Unregistered partnership was not a legal entity, thus, could not sue in its own name—All partners of unregistered partnership would be made as plaintiffs in order to remove legal lacuna pertaining to maintainability of suit. 1994 PTD 194 and 1996 CLC 1205 rel. PLD 2003 Karachi 314

Suit for recovery of amount—Plaint was sought to be rejected on the ground that in absence of registration of the partnership firm, suit could not be filed against the firm and was liable to be summary rejection without further proceedings—Validity—Plaintiffs had sued the defendant for recovery of amount in their individual capacity and not for and on behalf of the firm—Order rejecting the application for rejection of plaint, not suffering from any legal infirmity or impropriety, could not be interfered with by High Court, 2001 CLC 676

Whether application for eviction was barred under Section 69 of Partnership Act–Question of–Contention that since matter of registration goes to very root of matter, Rent Controller was bound to take same into consideration as a preliminary imperative–This contention is raised on assumption that landlords of disputed premises are M/s. R.T.Centre said to be an unregistered firm and not respondents which is not factually correct–Held: Even otherwise, words “other proceedings” used in sub-section (3) of Section 69 of Partnership Act, do not include an ejectment case or a writ petition, and preliminary objection raised by appellant has got not substance. PLJ 1992 Karachi 396 PLD 1976 Karachi 808 and 1985 CLC 2423 rel.

Penalty for furnishing false particulars: Any person who signs any statement, amending statement, notice or intimation under this Chapter containing any particular which he knows to be false or does not believe to be true, or containing particulars which he knows to be incomplete or does not believe to be complete, shall be punishable with imprisonment which may extend to three months, or with fine, or with both.

Power to make rules: (1) The Provincial Government may make rules prescribing the fees which shall accompany documents sent to the Registrar of Firms, or which shall be payable for the inspection of documents in the custody of the Registrar of Firms, or for copies from the Register of Firms:

Provided that such fees shall not exceed the maximum fees specified in Schedule.

Provided further that the fees payable for any service desired on the same day on which an application for the same is made may be double the aforesaid maximum fees.

(2) The provincial Government, may also make rules –

(a) prescribing the form of statement submitted under section 58, and of the verification thereof;

(b) requiring statements, intimations and notices under sections 60, 61, 62 and 63 to be in prescribed form, and prescribing the form thereof;

(c) prescribing the form of the Register of Firms, and the mode in which entries relating to firms are to be made therein, and the mode in which such entries are to be amended or notes made therein;

(d) regulating the procedure of the Registrar when disputes arise;

(e) regulating the filing of documents received by the Registrar;

(f) prescribing conditions for the inspection of original documents;

(g) regulating the grant of copies;

(h) regulating the elimination of registers and documents;

(i) providing for the maintenance and form of an index to the Register of Firms; and

(j) generally, to carry out the purposes of this Chapter.

(3) All rules made under this section shall be subject to the condition of previous publication.

CHAPTER – VIII
Supplemental

Mode of giving public notice: A public notice under this Act is given –

(a) where it relates to the retirement or expulsion of a partner from a registered firm, or to the dissolution of a registered firm, or to the election to become or not to become a partner in a registered firm by a person attaining majority who was admitted as a minor to the benefits of partnership, by notice to the Registrar of Firms under section 63, and by publication in the official Gazette and in at least one vernacular newspaper circulating in the district where the firm to which it relates has its place or principal place of business, and

(b) in any other case, by publication in the official Gazette and in at least one vernacular newspaper circulating in the district where the firm to which it relates has its place or principal place of business.

Nothing in this Act or any repeal effected thereby shall affect or be deemed to affect –

(a) any right, title, interest, obligation or liability already acquired, accrued or incurred before the commencement of this Act, or

(b) any legal proceeding or remedy in respect of any such right, title, interest, obligation or liability, or anything done or suffered before the commencement of this Act, or

(c) anything done or suffered before the commencement of this Act, or

(d) any enactment relating to partnership not expressly repealed by this Act, or

(e) any rule of insolvency relating to partnership, or

(f) any rule of law not inconsistent with this Act.

SCHEDULE

Maximum FeesSee sub-sec. (1) of Sec. 71

Document or act in respect of which the fee is payable

Maximum Fees

Rs.

1

2

Statement under Section 58

50

Statement under Section 60

20

Intimation under Section 61

20

Intimation under Section 62

20

Notice under Section 63

20

Application under Section 64

20

Inspection of the Register of Firms under sub-section (1) of Section 66

5

Inspection of documents relating to a firm under sub-section (2) of Section 66 or any other document in the custody of the Registrar of Firms

5

Copies from the Register of Firms

Rs. 2 for each 100 words or part thereof.”

APPENDIX I

SPECIMEN FORM OF A PARTNERSHIP DEED

This agreement made at Karachi this 1st date of July, 1990, between AB, Muslim, adult, residing at Karachi of the one part AND, CD, Muslim, adult, residing at Karachi, of the other part.
WHEREAS the party of the One Part and the party of the Other Part have agreed to enter into a partnership business upon the terms and conditions herein contained;

Now therefore these presents witness.-And it is hereby agreed between the parties hereto as follows:

This Deed of Partnership shall come into force with effect from the first day of April, 1990.

The partnership business shall consist of sale, purchase and manufacture of dyes and chemicals, and all kinds of agency business, whether manufacturing or otherwise, and/or such other business as may be decided by the partners from time to time.

The partnership shall be carried on in the name and style of “AB & Sons”.

The partnership shall be a partnership at will.

The partnership business shall be conducted at Karachi and/or at such other place or places as shall be agreed to. by the partners from time to time.

Both the partners shall initially invest Rs. 10,000 each and the amounts so invested by the partners shall form tile capital of the partnership, and the same shall be used as per these present in the partnership business.

Further capital, if any, required by the partnership shall be obtained from time to time by the partnership by way of loans hundies or otherwise from third parties on payment of interest at the market rate, and such interest shall be paid out of the partnership funds irrespective of profits and losses of the said business.

The net profits of the partnership business shall, after meeting all the necessary costs, charges and expenses incurred in carrying on the said partnership business, be divided in the following proportion:

(a) AB………………50P. in the rupee.

(b) CD………………50P. in the rupee.

any they shall in the like proportion bear all losses, including loss of capital.

The profits and losses of the partnership shall be determined as on the 30th day of June each year, and the same shall be distributed to, or recovered from, the partners concerned in the proportion aforesaid.

It is hereby agreed that each of the partners shall be entitled to draw Rs. 1,000 (Rupees one thousand only) per month for his personal expenses without the consent of the other partner, and such drawing shall be debited to his personal account, and the sum so drawn shall be in part or full satisfaction, as the case may be, of the share of the said partner in the profits of the said partnership business for that year.

PROVIDED ALWAYS that if in any year, the sum drawn as aforesaid by the partner shall exceed the amount of his share of the net profits for that year, the said partner shall refund the excess to the partnership as soon as the same shall be ascertained or from his share of the profits of the subsequent year or years.

The partners shall open one or more current accounts with any Bank or Banks in the name of the partnership, and the account or accounts so opened shall be operated by either partner.

Both the partners shall have full power and authority to draw cheques, withdraw cash through signed cheques, overdraw from Bank or Banks, take loans, secure credits, sign bills of exchange and any other legal instrument or instruments, endorse hundies, appoint attorney or attorneys for and to commence, continue, defend, compound or settle any suit, prosecution or any legal proceeding for or against the partnership,

PROVIDED ALWAYS that in each such case, the approval or ratification of the other partner shall invariably be obtained.

All partnership money, bills, notes, cheques and other securities received by the partnership shall, as and when received, be paid and deposited in the Bank or Banks to the credit of the firm’s account, except such sums as are immediately required to meet the current expenses.

The accounts of the said partnership shall be properly maintained and kept at the office of the partnership, and shall be made up and prepared at the close of each year ending on the 30th day of June and the Same shall be signed by both the partners.

None of the partners hereto shall pledge the credit of the said business of the partnership, except in the usual and regular course of business, or give credit to or conduct any business for any other firm, company or person.

The money constituting the net profits made on such yearly account as aforesaid, after deducting all the expenses, salaries, wages, taxes, etc., may be withdrawn by each partner respectively entitled thereto according to his respective share as herein before provided (less such sums as may have been previously drawn on account by such partner).

In the event of any partner desiring to retire, for any reason whatsoever, from the said partnership, he shall give a previous notice of three months to that effect. On such notice being received by the firm, the account books of the firm shall be brought up-to-date and a balance-sheet as at the end of the period of the said notice shall be made up. The outgoing partner shall be paid his share of the net profits as on the date of retirement and shall be required to pay all his dues or debts, if any, to the firm, and after all the claims and dues of and/or against the firm are satisfied, he shall be deemed to be free from the partnership, and the other partners shall be deemed to be free from the partnership, and the other partners shall be entitled to continue the business of the partnership as the sole proprietor thereof. The partner thus going out shall be entitled to the rights of the goodwill of the firm to the extent of his share in the partnership.

In the event of death of either of the partners occurring during the currency of the said partnership, the surviving partner shall be entitled to continue and carry on the said business in partnership with the legal heirs, successors or legal representative of the deceased partner, and if such heirs, successors or legal representatives of the deceased partner decide not to carry on the said business in partnership, then the surviving partner may carry on the said business as the sole proprietor thereof in the same name and style, after working out and paying the dues and claims of the deceased partner to his heirs, successors or legal representatives, as the case may be, who shall have full power to inspect accounts and obtain such information as may be necessary for ascertaining that the share of the deceased has been properly worked out and paid. The share of the deceased shall include his share in the goodwill of the firm.

Any dispute or question which may arise in the business of the said partnership in connection with any matter between the partners or the surviving partner and the heirs, successors or legal representatives of the deceased partner, whether during the currency of this Agreement or after the termination thereof, relating to or arising out of the business of the partnership or of this Agreement. Such arbitration shall be held at Karachi, and shall be governed by the provisions of the Arbitration Act for the time being in force in Pakistan, and the Arbitration Award shall be binding on the parties to the dispute.

IN WITNESS WHEREOF the parties hereto have hereunto set and subscribed their respective hands and seals the day and year first herein above written.

SIGNED SEALED AND DELIVERED by the within named

AB, in the presence of .________________

(Signature of AB)

SIGNED SEALED AND DELIVERED by the within

CD, in the presence of ___________________named

(Signature of CD)

APPENDIX II

SPECIMEN FORM OF A DISSOLUTION DEED

THIS DEED made at Karachi this 1st day of March, 1990, between AB of Karachi, Muslim adult, residing at Karachi of the First Part and CD, Muslim adult, residing at Karachi of the other part.

WHEREAS the party of the First Part and the party of the Other Part have entered into a Partnership business in dyes and chemicals under a Deed of Partnership dated the 1st day of January, 1988;

AND WHEREAS the said Partnership was a partnership at will;

AND WHEREAS on account of disputes between the partners, it has been decided by and between the partners that the said partnership shall be dissolved on the terms and conditions hereinafter appearing:

NOW THIS DEED WITNESS as follows:

The said partnership entered into under the Deed of Partnership dated the 1st day of January, 1988 is hereby dissolved with effect from the date of this Deed.

The party of the First Party hereby agrees and undertakes to notify the dissolution of the partnership to the Registrar of Firms and also give notice thereof in a local newspaper, within 21 days from the date of the execution hereof.

The assets and liabilities of the partnership, have been assessed and the final balance-sheet and profit and loss account have been taken to the mutual satisfaction of both the parties hereto.

On the dissolution of the partnership, the assets and liabilities of the firm as per the balance-sheet aforesaid together with the stocks, securities goodwill, tenancy rights and all other assets of the firm have been allotted and assigned to the party of the First Part, who has paid to the party of the Other Part a sum of Rs……. (Rupees…….. only, the receipt whereof the party of the Other part hereby acknowledges) in part-payment of his share in the net divisible assets of the firm and has given to the party of the Other Part a Promissory Note for a sum of Rs……. (Rupees ……. only) payable on 1st December 1990 with interest at 10 per cent annum being the balance of his share in the assets of the firm.

The party of the Other part hereby releases, grants, assigns and conveys ALL his share, right, title and interest in the said partnership business and properties, including the goodwill and tenancy rights thereof TO HOLD the same into the party of the First Part absolutely.

The party of the First Part hereby convenants with the party of the Other Part that he shall discharge all the liabilities and obligation of the partnership and shall effectively indemnify and continue to indemnify the party of the Other Part against claims and expenses in respect thereof.

The party of the Other Part shall not, for a period of 5 years from the date hereof, engage himself directly or indirectly in the business of dyes and chemicals within a radius of 2 miles from the premises of the partnership shop.

Unless repugnant to the context or meaning thereof, the expressions “the party of the First Part” and “the party of the Other Part” shall include their respective heirs, representatives, successors and assigns.

IN WITNESS WHEREOF the parties hereto have hereunto set and subscribed their respective hands and seals the day and year first herein above written.

SIGNED SEALED ANDDELIVERED by the within named

AB in the presence of:

(Signature of AB)

SIGNED SEALED ANDDELIVERED by the within named

CD in the presence of:

(Signature of CD)

APPENDIX III

THE CONTRACT ACT(IX OF 1872)CHAPTER Xl(Ss. 239- 266)OF PARTNERSHIP

“Partnership defined”: “Partnership” is the relation which subsists between persons who have agreed to combine their property, labour or skill in some business, and to share the profits thereof between them.

“Firms defined”: Persons who have entered into partnership with one another are called collectively a “firm”.Illustrations.

(a) A and B buy 100 bales of cotton, which they agree to sell for their joint account; A and B are partners in respect of such cotton.

(b) A and B buy 100 bales of cotton, agreeing to share it between them. A and H are not partners.

(c) A agrees with B, a goldsmith, to buy and furnish gold to B, to be worked up by him and sold, and that they shall share in the resulting profit or loss. A and B are partners.

(d) A and B agree to work together as carpenters, but that A shall receive all profits and shall pay wages to B. A and B are not partners.

(e) A and B are joint owners of a ship. This circumstances does not make them partners.

Lender not a partner by advancing money for share of profit: A loan to a person engaged or about to engage in any trade or undertaking upon a contract with such person that the lender shall receive interest at a rate varying with the profits or that he shall receive a share of the profits, does not, of itself, constitute the lender a partner, or render him responsible as such.

Property left in business by retiring partner, or deceased partner’s representative: In the absence of any contract to the contrary, property left by a retiring partner, or the representative of a deceased partner, to be used in the business is to be considered a loan within the meaning of the last preceding section.

Servant or agent remunerated by share of profits not a partner: No contract for the remuneration of a servant or agent of any person, engaged in any trade or undertaking, by a share of the profits of such trade or undertaking shall, or itself, render such servant or agent responsible as a partner therein, nor give him the rights of a partner.

Widow or child of deceased partner receiving annuity out of profits not a partner: No person, being a widow or child of a deceased partner of a trader and receiving by way of annuity a proportion of the profits made by such trader in his business, shall, by reason only of such receipt, be deemed to be partner of such trader, or be subject to any liabilities incurred by him.

Person receiving portion of profits for sale of goodwill not a partner: No person receiving, by way of annuity or otherwise, a portion of the profits of any business, in consideration of the sale by him of the goodwill of such business, shall by reason only of such receipt, be deemed to be a partner of the person carrying on such business, or be subject to his liabilities.

Responsibility of person leading another to believe him a partner: A person who has, by words spoken or written or by his conduct, led another to believe that he is a partner in a particular firm is responsible to him as partner in such firm.

Liability of person permitting himself to be represented as a partner: Any one consenting to allow himself to be represented as a partner is liable, as such, to third persons who, on the faith thereof, give credit to the partnership.

Minor partner not personally liable but his share is: A person who is under the age of majority according to the law to which he is subject may be admitted to the benefits of the partnership, but cannot be made personally liable for any obligation of the firm; but the share of such minor in the property of the firm is liable for the obligations of the firm.

Liability of minor partner on attaining majority: A person who has been admitted to the benefits of partnership under the age of majority becomes, on attaining that age, liable for all obligations incurred by the partnership since he was so admitted, unless he gives public notice within a reasonable time, of his repudiation of the partnership.

Partner’s liability for debts of partnership: Every partner is liable for all debts and obligations incurred while he is a partner in the usual course of business by or on behalf of the partnership; but a person who is admitted as a partner into an existing firm does not thereby become liable to the creditors of such firm for anything done before he became a partner.

Partner’s liability to third person for neglect or fraud of co-partner: Every partner is liable to make compensation to third persons in respect of loss or damage arising from the neglect or fraud of any partner in the management of the business of the firm.

Partner’s power to bind co-partners: Each partner who does any act necessary for, or usually done in, carrying on the business of

such a partnership as that of which he is a member binds his co-partners to the same extent as if he were their agent duly appointed for that purpose.

Exception: If it has been agreed between the partners that any restriction shall be placed upon the power of any one of them, no act done in contravention of such agreement shall bind the firm with respect to persons having notice of such agreement.

Illustrations

(a) A and B trade in partnership, A residing in England, and B in Pakistan. A draws a bill of exchange in the name of the firm. B has no notice of the bill, nor, is he at all interested in the transaction. The firm is liable on the bill, provided the holder did not know of the circumstances under which the bill was drawn.

(b) A, being one of a firm of solicitors and attorneys, draws a bill of exchange in the name of the firm without authority. The other partners are not liable on the bill.

(c) A and B carry on business in partnership as bankers. A sum of money is received by A on behalf of the firm. A does not inform B of such receipt, and afterwards A appropriates the money to his own use. The partnership is liable to make good the money.

(d) A and B are partners. A with the intention of cheating B, goes to a shop and purchases articles on behalf of the firm, such as might be used in the ordinary course of the partnership business and converts them to his own separate use, there being no collusion between him and the seller. The firm is liable for the price of the goods.

Annulment of contract defining partners, rights and obligations: Where partners have by contract regulated and defined, as between themselves, their rights and obligations, such contract can be annulled or altered only by consent of all of them, which consent must either be expressed, or be implied from a uniform course of dealing.

Illustrations

A, B and C, intending to enter into partnership, execute written articles of agreement, by which it is stipulated that the net profits arising from the partnership business shall be equally divided between them. Afterwards they carry on the partnership business for many years. A receiving one-half of the net profits and the other half being divided equally between B and C. All parties know of and acquiesce in this arrangement. This course of dealing supersedes the provision in the articles as to the division of profits.

Rule determining partners’ mutual relations, where no contract to contrary: In the absence of any contract to the contrary the relations of partners to each other are determined by the following rules:-

(1) all partners are joint owners of all property originally brought into the partnership stock, or bought with money belonging to the partnership, or acquired for the purposes of the partnership business. All such property is called partnership property. The share of each partner in the partnership property is the value of his original contribution, increased or diminished by his share of profits or loss;

(2) all partners are entitled to share equally in the profits of the partnership business, and must contribute equally towards the losses sustained by the partnership;

(3) each partner has a right to take part in the management of the partnership business;

(4) each partner is bound to attend diligently to the business of the partnership, and is not entitled to any remuneration for acting in such business;

(5) when differences arise as to ordinary matters connected with the partnership business, the decision shall be according to the opinion of the majority of the partners; but no change in the nature of the business of the partnership can be made, except with the consent of all the partners;

(6) no person can introduce a new partner into a firm without the consent of all the partners;

(7) if from any cause whatsoever any member of a partnership ceases to be so, the partnership is dissolved as between all the other members;

(8) unless the partnership has been entered into for a fixed term, any partner may retire from it at any time;

(9) where a partnership has been entered into for a fixed term, no partner can, during such term, retire except with the consent of all the partners, nor can he be expelled by his partners for any cause whatever, except by order of Court;

(10) partnerships, whether entered into for a fixed term or not, are dissolved by the death of any partner.

When Court may dissolve partnership: At the suit of a partner the Court may dissolve the partnership in the following cases:-

(1) when a partner becomes of unsound mind;

(2) when a partner, other than the partner suing, has been adjudicated an insolvent under any law relating to insolvent debtors;

(3) when a partner, other than the partner suing, has done any act by which the whole interest of such partner is legally transferred to a third person;

(4) when any partner becomes incapable of performing his part of the partnership contract;

(5) when a partner, other than the partner suing, is guilty of gross misconduct in the affairs of the partnership or towards his partners;

(6) when the business of the partnership can only be carried on at a loss.

Dissolution of partnership by prohibition of business: A partnership is in all cases dissolved by its business being prohibited by law.

Rights and Obligations of partners in partnership continued after expiry of term for which it was entered into: If a partnership entered into for a fixed term be continued after such term has expired, the rights and obligations of the partners will, in the absence of any agreement to the contrary, remain the same as they were at the expiration of the term, so far as such rights and obligations can be applied to a partnership dissolvable at the will of any partner.

General duties of partners: Partners are bound to carry on the business of the partnership for the greatest common advantage, to be just and faithful to each other, and to render true accounts and full information of all things affecting the partnership to any partner or his legal representatives.

Account to firm of benefit derived from transaction affecting partnership: A partner must account to the firm for any benefit derived from a transaction affecting the partnership.

Illustrations

(a) A, B and C are partners in trade. C, without the knowledge of A and B, obtains for his own sole benefit a lease of the house in which the partnership business is carried on. A and B are entitled to participate if they please, in the benefit of the lease.

(b) A, B and C carrying on business together in partnership as merchants trading between Bombay and London D, a merchant in London, to whom they make their consignments, secretly allows C a share of the commission which he receives upon such consignments, in consideration of C’s using his influence to obtain the consignments for him. C is liable to account to the firm for the money so received by him.

Obligations, to firm, of partner carrying on competing business: If a partner, without the knowledge and consent of the other partners carries on any business competing or interfering with that of the firm, he must account to the firm for all profits made in such business, and must make compensation to the firm for any loss occasioned thereby.

Revocation of continuing guarantee by change in firm: A continuing guarantee, given either to a firm or to a third person, in respect of the transactions of a firm, is, in the absence of agreement to the contrary, revoked as to future transactions by any change in the constitution of the firm to which, or in respect of the transactions of which, such guarantee was given.

Non-liability of deceased partner’s estate for subsequent obligation: The estate of a partner who has died is not, in the absence of an express agreement, liable in respect of any obligation incurred by the firm after his death.

Payment of partnership debts and of separate debts: Where there are joint debts due from the partnership, and also separate debts due from any partner, the partnership property must be applied in the first instance in payment of the debts of the firm, and, if there is any surplus, then the share of each partner must be applied in payment of his separate debts or paid to him. The separate property debts, and the surplus (if any) in the payment of the debts of the firm.

Continuance of partners’ rights and obligations after dissolution: After a dissolution of partnership, the rights and obligations of the partners continue in all things necessary for winding up the business of the partnership.

Notice of dissolution: Persons dealing with a firm will not be affected by a dissolution of which no public notice has been given, unless they themselves had notice of such dissolution.

Winding up by Court on dissolution or after termination: Where a partner is entitled to claim a dissolution of partnership, or where a partnership has terminated, the Court may, in the absence of any contract to the contrary, wind up the business of the partnership, provide for the payment of its debts and distribute the surplus according to the shares of the partners respectively.

Limited liability partnerships, incorporated partnerships and joint-stock companies: Extraordinary partnerships, such as partnerships with limited liability, incorporated partnerships and joint stock companies, shall be regulated by the law for the time being in force relating thereto.

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